Dealing With Debt – A Two Step Plan

Dealing With Debt and BudgetThree years ago Greg sent an email to one of our advisors desperately looking for help to deal with his debt. He was single, in his mid-50’s, with no dependents and had a decent job but he owed his unsecured creditors $75,000. He also owned a small house with a little bit of equity.

Greg had done everything he could think of to get his debts under control. He had already gotten a second mortgage on his home and had been regularly cashing out his RRSP’s to keep current on his debt payments. Unfortunately his income was not enough to service his debt load. To add to his financial burden he now faced an income tax debt from cashing in his RRSPs and he had a very high interest rate second mortgage. He had hit the end of his road.

Greg’s initial meeting with his debt advisor went well. It was obvious Greg had a cash flow problem. While he had a secure job it was not a high paying job. Any debt solution he chose needed to reduce his monthly debt payments. In addition, Greg mentioned 3 things that were very important to him; not filing a bankruptcy, keeping his house and stopping the collection calls.

Initially Greg’s credit counsellor discussed refinancing his home. If Greg could refinance and get rid of his second mortgage his cash flow would be greatly improved. After discussing his home’s value and the balances of both mortgages it was clear that there was not enough equity to look at refinancing.

In Greg’s case he needed a two stage debt management strategy. To deal with his unsecured debts, Greg would file a consumer proposal. A consumer proposal would allow Greg to keep his home and the small amount of equity in it, it would prevent him from filing for bankruptcy and it would stop the collection calls. When his second mortgage came up for renewal, we would again see if refinancing would help reduce his interest costs and monthly debt payments.

Greg filed his proposal the next month. His creditors accepted the terms of his debt proposal and Greg was happy. His credit counsellor continued to speak with Greg many times during the proposal to see how things were going. Greg was honest when he admitted that even with his proposal in place his budget was extremely tight because of his second mortgage, but he managed to hold on. A few things helped Greg. His job responsibilities changed and he was no longer required to drive a very long distance each day to and from work. This cut back on his car expenses dramatically. As a result of his unusual work hours he was able to pick up a part time job which increased his income.

when Greg’s mortgage was coming up for renewal his debt advisor suggested that he speak with a mortgage broker about refinancing and eliminating his high interest second mortgage. He followed that advice and found a mortgage broker who was able to get him a new mortgage at a better interest rate. He was also able to pay out the balance of his proposal from the equity in his home.

Greg admits that when he first met with his debt counsellor and she described this plan to him to become debt free, he did not think it would happen and certainly not as quickly as it did.

Greg is now used to living within his new budget and his plan for the future is to save as much money as possible for his retirement years.

If you are experiencing similar problems balancing your debt repayments within your budget, talk to a professional debt consultant in your community today for advice.

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